Oil Companies Sliding Out of Green Energy While Others are Venturing In
Raising capital in today’s economic climate is a
challenge. To that end, energy companies are at a
crossroad -- to invest solely in their core
operations or to expand the boundaries and to
venture into ancillary areas.
One of the few industrial components to have thrived
over the last five years is that of the oil
industry, which has taken some of its vast wealth
and risked it to help build tomorrow’s energy
technologies. And while the segment has not gone
completely sour on alternative energy, it is now
saying that it is getting more bang for its buck by
investing in oil and gas development. What does this
portend for the future of renewable energy and where
those projects might raise funds?
“We’ve thrown in the towel on solar,” says BP’s
Chief Executive Bob Dudley before an IHS CERAWeek
audience. “We worked on it for 35 years and never
made any money.”
Dudley’s comments are taken from blog in
FuelFix.com, which point out that oil companies
are having doubts about their investments in wind
and solar, among other alternative energies. For
example, the story also references an energy
economist at the University of Houston, who says
that $50 million spent developing shale plays will
create $250 million in value whereas the same money
spent on a wind far will leverage just $10 million
in value.
BP, of course, is still embroiled in the legal
morass emanating from the huge oil spill in the Gulf
of Mexico. As such, it has agreed to pay $4.5
billion in fines, which is money that it must raise
by selling assets. Such pressures mean that it will
ditch those deals that are producing less value for
the company, which include both wind and solar
farms.
Other oil companies such as ExxonMobil and Chevron
are not under the same stresses. But each has said
that budding ideas that include using algae and
ethanol for transportation fuel remain costly and
distant.
ChevronCorp., meantime, has stakes in
geothermal. The company says that it is still
committed to generating more renewables at scale,
without subsidies. But it adds that getting all
green projects to scale is hard and that mandating
their use before the technologies are ready will
only increase costs.
Calculated Risks
Large corporations have traditionally delved into
related areas that are just beyond their areas of
expertise. It’s reasonable if they have ample cash.
Some companies invest in early stage development
whereas others join in later. Their stakes can range
from being small shareholders to holding majority
interests.
In the 1990s, utilities took on such roles mostly by
creating venture capital arms. The idea was to
unlock shareholder value and to appeal to those
seeking more than steady dividend payments. At
first, some of the ideas took off. But when the
American economy nosedived in 2001, many of those
enterprises fell flat.
Montana Power, for example, had been a traditional
utility that converted to a telecom called
TouchAmerica. At first, the transition was a huge
success -- until the telecom industry hit the skids,
forcing TouchAmerica to file for bankruptcy in 2003.
Now those valuable utility assets have been sold
off.
By contrast, Big Oil’s green energy forays are
calculated bets that are also good PR. ExxonMobil’s
Chief Executive Rex Tillerson has said that his
company is allocating capital to develop alternative
fuels. Case in point: Exxon’s $600 million pledge to
Synthetic Genomics, which focuses on advancing
algae. But even Tillerson is admitting that bringing
the idea to market is proving to be a major
undertaking.
“There is no significant alternative to oil in
coming decades and ExxonMobil will continue to make
oil and natural gas its primary products," says
Tillerson, at an industry conference. “The scale
advantages of oil and natural gas across a broad
array of applications provide economic value
unmatched by any alternative.”
Big Oil won’t hit the gas but it will still go
green. French Company Total Gas & Power, for
example, bought a 60 percent stake in
SunPower for a $1.38 billion two years ago.
Total says that it wants to advance its research and
development efforts.
Public funding, meanwhile, is simultaneously
occuring. To that end, President Obama has some
powerful voices in his corner, namely Microsoft
Chair Bill Gates, who says that the “underfunding”
of clean technologies is “delaying progress.”
Green energy mandates at the sate level,
furthermore, are ongoing despite the opposition.
Such ready-made markets provide assurances to
technology creators and to utilities that may be
selling that power.
Energy generation is not an all-or-nothing
proposition. Oil companies may be rethinking their
strategies while others are eyeing those potential
green investments. Markets shift and so do the
opportunities.
EnergyBiz Insider has been awarded the Gold for
Original Web Commentary presented by the American
Society of Business Press Editors. The column is
also the Winner of the 2011 Online Column category
awarded by Media Industry News, MIN. Ken Silverstein
has been honored as one of MIN’s Most Intriguing
People in Media.
Twitter: @Ken_Silverstein
energybizinsider@energycentral.com
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